Economics Notes on Foreign Trade for SSC Exam

General Awareness section is scoring section of SSC exam provided we prepare for it well in advance. In this section, Economics is a very important section. In this article we will be covering Foreign Trade topic in detail.

 Introduction of Foreign Trade:

There is no country in the world today which produces all the commodities it needs. Every country, therefore, tries to produce those commodities in which it has comparative advantage. It exchanges part of those commodities with the commodities produced by other countries relatively more efficiently. The relative difference in factor endowments, technology, tastes etc., among the nations of the world have greatly widened the basis of international trade.

Role of Foreign Trade in Economic Development:-  

Role Details
Foreign trade and economic development. Foreign trade plays very important role in the economic development of any country. India exports a lot of agricultural product to other countries and imports the capital goods from other countries. The economic development of a country depends of foreign trade.
Foreign exchange earning Foreign trade provides foreign exchange which can be used to remove the poverty and other productive purposes.
Market expansion The demand factor plays very important role in increasing the production of any country. The foreign trade expands the market and encourages the producers.
Increase in investment Foreign trade encourages the investor to increase the investment to produce more goods. So the rate of investment increases.
Foreign investment Besides the local investment, foreign trade provides incentives for the foreign investors to invest in those countries where there is a shortage of investment.
Increase in national income Foreign trade increases the scale of production and national income of the country. To meet the foreign demand we increase the production on large scale so GNP also increases.
Decrease in unemployment With the rise in the demand of goods domestic resources are fully utilized and it increases the rate of development in the country and reduces the unemployment in the world.
Price stability Foreign trade helps to bring stability in price level. All those goods which are short and prices are increasing can be imported and those goods which are surplus can be exported. There by stopping fluctuation in prices.
Specialization There is a difference in the quality and quantity of various factors of production in different countries. Each country adopts the specialization in the production of those commodities, in which it has comparative advantage. So all trading countries enjoy profit through international trade.
Remove monopolies Foreign trade also discourages the monopolies. Where every any monopolist increases the prices, government allows the import of goods to reduce the prices in the country.
Removal of food shortage To remove the food shortage India has imported the wheat many times. So due to foreign trade we are solving this problem for many years.
Agricultural development Agricultural development is the back bone in our economy. Foreign trade has played very important role for the development of our agriculture sector. Every year we export rice, cotton, fruits and vegetables to other countries. The export of goods makes our farmer more prosperous. It inspires the spirit of development in them.
Import of consumer goods India imports the various consumer goods from other countries, which are not produced inside the country. Today the shortage of any commodity can be removed through international trade.
To improve quality of local products Foreign trade helps to improve quality of local products and extends market through changes in demand and supply as foreign trade can create competition with the rest of the world.
External economics External economics can also be achieved through foreign trade. The industries producing foods on large scale in Pakistan and India are enjoying the external economics due to international trade.
Competition with foreign producers We can compete with the foreign producers in foreign trade so it improves the quality and reduces the cost of production. It is also an advantage of foreign trade.
Useful for the world peace Today all the countries are tied in trade relations with each other. So foreign trade also contribute to peace and prosperity in the world.
Import of capital goods and technology The inflow of capital goods and technology in the less developed countries has increased the rate of economic development, and this is due to foreign trade.
Dissemination of knowledge Foreign trade is also responsible for dissemination of knowledge and learning from developed countries to under developed countries.
Interdependence Foreign trade is responsible for creating economic depending and establishing economic interest in the economy of the countries having trade relations.

Salient features of foreign trade of India are:-

  1. Negative or Unfavourable Trade: India had to import various items like heavy machinery, agricultural implements, mineral oil and metals on a large scale after Independence for economic growth. But our exports could not keep pace with our imports which left us with negative or unfavourable trade.
  2. Diversity in Exports: Previously, India used to export its traditional commodities only which included tea, jute, cotton textile, leather, etc. But great diversity has been observed in India’s export commodities during the last few years. India now exports over 7,500 commodities. Since 1991, India has emerged as a major exporter of computer software and that too to some of the advanced countries like the USA and Japan.
  3. Worldwide Trade: India had trade links with Britain and a few selected countries only before Independence. But now India has trade links with almost all the regions of the world. India exports its goods to as many as 190 countries and imports from 140 countries.
  4. Change in Imports: Earlier we used to import food-grains and manufactured goods only. But now oil is the largest single commodity imported by India. Both the imports as well as exports of pearls and precious stones have increased considerably during the last few years. Our other important commodities of import are iron and steel, fertilizers, edible oils and paper.
  5. Maritime Trade: About 95 per cent of our foreign trade is done through sea routes. Trade through land routes is possible with neighbouring countries only. But unfortunately, all our neighbouring countries including China, Nepal, and Myanmar are cut off from India by lofty mountain ranges which make trade by land routes rather difficult. We can have easy access through land routes with Pakistan only but the trade suffered heavily due to political differences between the two countries.
  6. Trade through selected ports only: We have only 12 major ports along the coast of India which handle about 90 per cent overseas trade of India. Very small amount of foreign trade is handled by the remaining medium and small ports.
  7. Insignificant place of India in the world overseas trade: Although India has about 16 per cent of the world’s population; but the share in the world overseas trade is less than one per cent. This shows the insignificant place of India in the world’s overseas trade. This is, however, partly due to very large internal trade, vast dimensions of the country provide a solid base for inter-state trade within the country. Europe is divided into a large number of smaller countries and the international trade is quite high.
  8. State Trading: Most of India’s overseas trade is done in public sector by state agencies and very little trade is done by individuals.
 After reading this article, you are advised to attempt quizzes as much as you can. It’s time to pull up your shocks as competition is increasing day by day. But if you prepare well by investing your time in right direction, you can stand out of crowd.

All the Best for your Exams
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